Inflation Rose to 3.7% in September, Hotter Than Expected -- 2nd Update

By Konrad Putzier

Inflation picked up in September, a sign that high energy prices are tightening their squeeze on consumers ahead of next month's midterm elections.

The numbers:

Consumer prices were up 3.7% in September from a year earlier, the Labor Department said Wednesday, hotter than August's gain of 3.4%.

That was above the 3.6% rise expected by economists surveyed by The Wall Street Journal.

Core prices excluding food and energy rose 2.6%, above forecasts for a 2.5% increase.

What this means for the Fed

Federal Reserve Chairman Kevin Warsh has said that he doesn't want to make interest-rate decisions based on one month's inflation reading. But economists are still paying attention to this release for clues on the Fed's direction, and inflation data could move the market's expectations for where Fed rates are headed.

The Fed has shifted its focus from boosting the labor market to fighting inflation, and officials last month raised rates for the first time in three years. At that meeting, most decision makers indicated that they anticipate one more rate increase this year.

Consumer spending

A key reason inflation is stuck above the Fed's target is the strength of America's consumers. Buoyed by low unemployment and rising stock prices, households continue to spend despite rising prices. That has made it easier for businesses to pass cost increases on to their customers.

Consumer spending was up by 2.6% in August from a year earlier even after adjusting for inflation, according to the Commerce Department. Still, Regions Financial chief economist Richard Moody said supply challenges like the closure of the Strait of Hormuz, tariffs and a shortage of workers in some industries have been a bigger driver of inflation. "Ultimately it's a supply-side story," he said.

Data centers

The boom in data-center construction has also contributed to inflation by pushing up the prices of semiconductors and other goods.

The challenge for the Fed is that higher interest rates may do little to ease that source of price pressure: Hyperscalers are likely to continue building even if their debt costs rise because the prospect of vast future AI profits is so enticing. Data-center builders show "much less price sensitivity and much greater sense of urgency around delivery," Cleveland Fed president Beth Hammack said in a recent interview.

Write to Konrad Putzier at konrad.putzier@wsj.com

(END) Dow Jones Newswires

October 14, 2026 08:38 ET (12:38 GMT)